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Ask HN: How to leave a startup when you own a third of it?

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Re: Ask HN: How to leave a startup when you own a third of it?

#31

Post by Ntrails »

BrentOzar wrote: post #6

Here's the questions we thought through when our 3-person consulting firm split up: https://ozar.me/2015/12/what-does-it-mean-to-buy-out-your-pa... The first thing to do is read the startup's legal agreements. In our case, when we started the company, we agreed that partners (owners) could not participate in a business that competed with our own. You could leave at any time and do something competitive - but if you d…

The most common method of valuation for splits I've heard is the shotgun clause into "offer what you're willing to accept" methodology.

As in, offer a price to buy me out - but you have to be willing to accept the same price for your share (which is the incentive to make a fair offer). Ofc i've only seen it in 2 person partnerships but imagine can be generalised.

Re: Ask HN: How to leave a startup when you own a third of it?

#32

Post by joopxiv »

nealbozeman wrote: post #7

Keep the 1/3rd of the company you are entitled to today, and make sure the other two founders stick around by creating a new allocation of shares that will have a vesting schedule, and will dilute you down fairly over time. There's nothing to stop the other founders from doing the exact same thing you are doing - leave and retain the company. Give them a compelling reason to stay.

This is absolutely the best strategy in my opinion. If they would sell the company 1 month after you leave, you'd still have almost the same percentage as they would, which is fair. If they'd stick around for another 16 month and then exit, your share would be diluted, which is also fair.

Re: Ask HN: How to leave a startup when you own a third of it?

#35

Post by sah2ed »

bitL wrote: post #13
BrentOzar wrote: post #9

Earlier quoted context omitted.

> You shouldn't care about what other people think is "too much". Except for one situation: if the remaining partners don't believe the company is worth much, and you believe it'll be worth a lot, then that's the perfect time to buy THEM out. (Especially if you're having disagreements over strategy, and you believe you have a lot invested in the company.)

They are obviously worth at least $2M and other ones want to continue, and apply some mental tricks to lower OP's share as she is obviously inexperienced/mentally weak (otherwise wouldn't post such a worded article on HN but instead went maximizing her returns). They can anytime offer a buyout (3-5x times what her share is worth right now), but they don't.

> ... as she is obviously inexperienced/mentally weak

Unless you can read mental states from behind an internet comment, there was no need to resort to ad hominem to characterize the OP.

Re: Ask HN: How to leave a startup when you own a third of it?

#36

Post by charlesdm »

austenallred wrote: post #26

Do you have a vesting agreement in place? If not your investors will likely require one. What that agreement should say is something along the lines of "each founder gets 1/48th of their shares for each month of having been at the company." There's usually a "cliff" of 1 year, but it looks like you're past that. That being said, you need to realize that you bailing may put everything in jeopardy, as investors are lik…

Not all investors do, and frankly, I've seen a case where a founder was pushed out by early investors after 24-36 months. In this example, they acquired his stake for $1M+.

If no vesting currently in place, you have to do exactly nothing. The stake is yours. Your co-founders might not be able to raise investment, but you can't be forced to sell your stake. If you're reasonable, you pick a price for your shares and ask them to buy you out. If they are not willing to do that, just keep it.

Re: Ask HN: How to leave a startup when you own a third of it?

#37

Post by j_s »

A lot of people have provided helpful advice on how to handle this situation.

Is anyone able to provide links to existing info on how to setup a startup that would have already setup a framework for a situation like this to be handled fairly? This is an opportunity for someone to say "next time, start with ____ because it covers this situation as follows: ..."

Re: Ask HN: How to leave a startup when you own a third of it?

#38

Post by traviswingo »

This is a tough decision, but you're absolutely not alone.

I've dealt with this in founding a company with my closest friends. I didn't agree with many aspects of how the company was being run and simply picked up and left. I also owned a significant portion of the company in my departure.

In my opinion, you keep the shares that have vested to you, not the shares you are entitled to. I left 2.5 years after signing my stock purchase agreement, so a large percentage of shares were already allocated to me. They tried to get me to give back some of my shares, but I worked extremely hard and sacrificed a lot over the 2.5 years (including working for free), so the shares were the only feasible form of compensation I could argue for.

Eventually what happened was the company issued more shares, effectively diluting my holdings to nothing.

They're still puttering along, doing the whole "I'm the CEO, bitch" thing, we're all still close friends, and I honestly don't regret a single thing about my decision because I was miserable working on it and fighting with my best friends every day.

Do what you feel is right and what will make you happy. In the end, that's what's important. Keep your shares. The chances of them being worth a significant amount are low, but in the event they're worth anything, you've earned that payout.

Re: Ask HN: How to leave a startup when you own a third of it?

#40

Post by surfmike »

charlesdm wrote: post #36
austenallred wrote: post #26

Do you have a vesting agreement in place? If not your investors will likely require one. What that agreement should say is something along the lines of "each founder gets 1/48th of their shares for each month of having been at the company." There's usually a "cliff" of 1 year, but it looks like you're past that. That being said, you need to realize that you bailing may put everything in jeopardy, as investors are lik…

Not all investors do, and frankly, I've seen a case where a founder was pushed out by early investors after 24-36 months. In this example, they acquired his stake for $1M+. If no vesting currently in place, you have to do exactly nothing. The stake is yours. Your co-founders might not be able to raise investment, but you can't be forced to sell your stake. If you're reasonable, you pick a price for your shares and as…

Even from a self-interest standpoint though it's probably not wise of him to keep the full share, since it is a red flag to investors and decreases the pool of equity available to people who are working at the company.
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